RBI Policy October 2023: RBI maintains status quo on repo rate, policy stance; FY24 inflation projection unchanged at 5.4%

RBI Monetary Policy October 2023: In line with estimates, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.5 per cent in its latest bi-monthly monetary policy meeting that was held between October 4 and October 6. The standing deposit facility (SDF) rate also remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the bank rate also remain steady at 6.75 per cent. 

A bank rate is the interest rate at which commercial banks borrow money from the RBI without selling their securities. 

A repo rate is the rate at which the central bank of any country (RBI in the case of India) lends money to commercial banks in case of any shortfall of funds.

Further, the committee also decided to maintain the 'Withdrawal of Accommodation' stance in the policy meeting.

The RBI Governor, Shaktikanta Das, while announcing the policy decision, said that all six members voted in favour of keeping the rates unchanged. As regards policy stance, 5 out of 6 voted in favour of maintaining the 'Withdrawal of Accommodation' policy stance.

The central bank governor further said that the FY24 CPI inflation projection also remains unchanged at 5.4 per cent while for Q2FY24, the inflation projection has been increased to 6.4 per cent from 6.2 per cent. Das added that inflation is expected to cool off in September.

The MPC has also decided to maintain the FY24 GDP growth at 6.5 per cent, the governor added.

Inflation Outlook 

The near-term inflation outlook is expected to improve on the back of vegetable price corrections and the recent reduction in LPG prices. The future trajectory will be conditioned by a number of factors, like lower area sown under pulses, dips in reservoir levels, El Niño conditions, and volatile global energy and food prices, the statement said

According to the Reserve Bank’s enterprise surveys, manufacturing firms expect higher input cost pressures but marginally lower growth in selling prices in Q3 compared to the previous quarter. Services and infrastructure firms expect a moderation in the growth of input costs and selling prices.

"Taking into account these factors, CPI inflation is projected at 5.4 per cent for 2023-24, with Q2 at 6.4 per cent, Q3 at 5.6 per cent and Q4 at 5.2 per cent, with risks evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2 per cent," the MPC statement read.

What experts say

Commenting on the RBI's policy, Himanshu Panchmatiya - Cofounder of Switch My Loan, said, “With no changes in the repo rate, or CRR, we expect the lending portfolios to go this quarter as the festive season is around the corner. Segments like consumer durable loans, car loans, personal loans, and fresh home loans are expected to do well in this quarter."

"We foresee the rates to remain unchanged for the next quarter too, seeing the global economy, market, and elections in India. The RBI may try to squeeze liquidity in other forms and wouldn’t touch the CRR," Panchmatiya added.

Vinod Nair, Head of Research at Geojit Financial Services, said," On a positive note, interest rates haven't increased as anticipated; however, they are expected to remain elevated for an extended period. This will have an implication on rate-sensitive sectors like banking, auto, core industries, and heavy-weighted balance sheet companies."

The elevated global bond yields and appreciation of the US dollar will affect the domestic economy and capital flows. However, it should not have a deep overhang effect on the economy but rather a mixed bias in the short term. The inclusion of government securities in the global bond index and moderation in inflation, like food and international commodity prices, will support INR and domestic corporate profit even in a volatile global currency market, the expert added.